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F ederal Reserve Ba nk o f D allas

DALLAS, TEXAS

75222

C i r c u l a r No. 75-5
J a n u a r y 10, 1975

INTERPRETATION OF REGULATION Z
Daily P e rio dic Rates Imposed on Daily Balances
In Open End C r e d it

TO ALL BANKS AND OTHERS CONCERNED
IN THE ELEVENTH FEDERAL RESERVE DISTRICT:
T h e B oard of G o v e r n o r s of th e Fe d e ra l R e s e r v e Syste m has
is s u e d a r e v i s e d i n t e r p r e t a t i o n of Section 2 2 6 . 7 (b) (8) to c la rify th e d i s ­
c l o s u r e r e q u i r e m e n t s w h e n the fin a n c e c h a r g e in an open e n d c r e d i t a c ­
co u n t is com pu ted by th e imposition of more th a n one d a ily p e r io d ic rate
on a d a ily b a la n c e o r b a l a n c e s . For e x a m p le , some c r e d i t o r s impose one
d a ily p e r io d ic ra te ( c o r r e s p o n d i n g to one a n n u a l p e r c e n t a g e rate ) for
b a la n c e s u p to a s p e c ifie d a m ou n t, a n d a lower d a ily p e r i o d i c ra te ( c o r ­
re s p o n d i n g to a lower a n n u a l rate ) for th a t p o rtio n of b a la n c e s a b o v e the
sp e c ifie d a m o un t.
P r in te d on th e r e v e r s e of t h is c i r c u l a r is a copy of th e i n t e r p r e ­
ta tion of R egulation Z; ad ditio n al c o p ie s will be f u r n i s h e d u p o n r e q u e s t .
Sincerely y o u rs ,
T . W. P la n t
F i r s t Vice P r e s i d e n t

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

TRUTH IN LENDING

INTERPRETATION OF REGULATION Z

F IN A N C E C H A R G E B A SE D O N A V E R A G E
D A IL Y B A L A N C E O R D A IL Y B A L A N C E S
IN O P E N E N D C R E D IT A C C O U N T S
§ 226.703 Section 2 2 6 .7 ( b ) ( 8 ) requires that
periodic statem ents for open end accounts shall
disclose, am ong o ther things, “T h e balance on
w hich the finance charge was com puted, and a
statem ent of how th at balance was determ ined.”
In some instances, creditors co m p ute a finance
charge on the average daily balance by application
of a m onthly periodic rate or rates. In such case,
this inform ation is adequately disclosed if the
statem ent gives the am o u nt of the average daily
balance on w hich the finance charge was com ­
puted, and also states how the balance is de­
term ined.
In other instances, the finance charge is com ­
puted on the balance each day by application of
one o r m ore daily periodic rates, and the question
arises as to how the balance on w hich the finance
charge was com puted should be disclosed in such
circum stances.
If a single daily periodic ra te is imposed, the
balance to w hich it is applicable m ay be stated
in any o f the following ways:
(i) A balance fo r each day in the billing
cycle; o r

(iv)
The average daily balance d uring the
billing cycle, in w hich case the creditor shall
state (o n the face of the periodic statem ent,
on its reverse side, o r on an enclosed supple­
m en t) w ording to the effect th a t the average
daily balance is or can be multiplied by the
n u m b e r of days in the billing cycle and the
periodic rate applied to the p ro d u ct to de­
term ine the am ou nt of the finance charge.
If two or m ore daily periodic rates m ay be im­
posed, th e balances to w hich the rates are ap­
plicable m ay be stated in accordance with (i) or
(ii) above or as two o r m ore average daily
balances, each applicable to the daily periodic
rates im posed. F o r example, if the cred ito r im ­
poses one daily periodic rate on balances up to
$500 and another daily periodic rate on balances
over $500, the creditor w ould show average daily
balances of $500 and $200 in an account which
had a $700 balance fo r the entire billing cycle.
If the average daily balances are stated, the cred­
itor shall state (on the face of the periodic state­
ment, on its reverse side, o r on an enclosed
supplem ent) w ording to the effect that the finance
charge is o r m ay be determ ined by (1 ) m ultiply­
ing each of the average daily balances by the
n um ber of days in the billing cycle, ( 2 ) m ultiply­
ing each o f the results by the applicable daily
periodic rate, and (3 ) adding these products
together.

(ii) A balance fo r each day in the billing
cycle on w hich the balance in the account
changes; or
(iii)
T h e sum of the daily balances during
the billing cycle; or

12-27-74


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102